AT&T and T-Mobile merger deal on the brink of collapse as antitrust lobby gains momentum

AT&T said it would take a $4 billion charge in case its takeover of T-Mobile USA fails, reflecting the dwindling chances for the deal, which is seen as job-destroying by powerful political opponents.

The telecommunications group and T-Mobile owner Deutsche Telekom, said they would continue to pursue antitrust approval for the $39 billion takeover from the U.S. Department of Justice, but has withdrawn applications to the industry regulator.

'AT&T Inc and Deutsche Telekom AG are continuing to
pursue the sale of Deutsche Telekom's U.S. wireless assets to
AT&T,' it said in a statement today.

Thanksgiving message? At&T did not comment on the timing of today's announcement that they will be taking a $4billion charge

AT&T declined to comment on the Thanksgiving timing of the announcement beyond the statement.

Both the DOJ
and telecoms watchdog, the Federal Communications Commission, oppose the
deal, which would reduce the number of national mobile carriers to three
while consumers are struggling to make ends meet and unemployment
rises.

FCC
approval would be meaningless if the DOJ blocked the transaction, and
AT&T and Deutsche Telekom said they would return to the FCC process
if they secured approval from the DOJ.

Analysts said the merger, badly needed by sub-scale
T-Mobile USA - the smallest of the four U.S. mobile operators - looked
less likely than ever to succeed.

Espirito Santo analysts said AT&T's decision to
take the $4 billion charge this quarter showed the company's own
assessment of the chances of success had fallen, causing its auditors to
force the company to take the hit now.

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'It tells us something about timing too - suggesting
that AT&T may decide to walk away at the first opportunity, March
20, 2012, rather than waiting for the ultimate September 20, 2012
deadline,' they wrote in a note to clients.

Deutsche Telekom shares were up 0.4 percent at 8.70 euros by afternoon.

Thursday's decision follows a blow earlier this week
when the FCC said it would try to send the deal to an administrative law
judge for review.

The FCC said the
merger would result in a massive loss of U.S. jobs and investment, and
significantly diminish competition, while the DOJ said it would lead to
higher wireless prices for consumers and businesses.

The DOJ has gone to
court to block the deal and a trial in that case is due to begin on
February 13. Any administrative hearing at the FCC, which is charged
with evaluating the public-interest merits of the proposal, would begin
after the anti-trust trial.

AllianceBernstein analysts said in a note that a pretrial settlement with the DOJ was not a 'likely' prospect.

Time for T? T-Mobile owner Deutsche Telekom shares were up 0.4 per cent today

U.S. consumer spending growth slowed last month and
business capital investment plans were weak, although first-time claims
for jobless benefits remained in a range that hinted at improving
labour-market conditions.

AT&T has 260,000 employees, mostly in the United States. Deutsche Telekom employs 36,000 at its U.S. unit.

AT&T argued that the T-Mobile merger could actually
create tens of thousands of jobs during integration and network
upgrades, and has pledged to bring back 5,000 jobs that it moved
overseas - but many observers are sceptical.

'I don't believe there's any politician in America
who's interested in being associated with something that has a negative
impact on the job situation in America,' Denmark-based telecoms
consultant John Strand of Strand Consult, said.

Acquiring T-Mobile
would vault No. 2-ranked AT&T into the leading position in the U.S.
wireless market, overtaking Verizon Wireless, a venture of Verizon
Communications Inc and Vodafone Group Plc.

It would also solve a
years-long problem for Deutsche Telekom, whose U.S. unit has long
ceased being a source of growth and is in urgent need of investment.

Credit rating agency Moody's said it believed Deutsche Telekom would rather exit the U.S. market than go it alone.

'The options open to Deutsche Telekom if it were to
stay in the U.S. market are much less palatable than if it were to
exit,' wrote Carlos Winzer, senior vice president at Moody's.

However, the ratings
agency believes that Deutsche Telekom will fight aggressively alongside
AT&T to salvage the sale process to improve its weak position in
the United States.

A failure would throw Deutsche Telekom Chief Executive
Rene Obermann's strategy into disarray and may force him to throw money
at a business he thought he was rid of. Company officials have said
there is no 'Plan B.'

The company faces a long delay at best and may be
driven back into the arms of No. 3 U.S. carrier Sprint Nextel - a less
suitable partner for whom T-Mobile USA would not be worth nearly as much
now as it was to AT&T in March.

A break-up fee of up
to $6 billion, including some spectrum and roaming access, would
provide some consolation and could allow Deutsche Telekom to sell the
U.S. unit at a discount, Strand said.

Telecoms consultant
Fred Huet of Greenwich Consulting said T-Mobile USA would immediately
need to find ways to cut costs. 'They need to find some way of sharing
cost across operators,' he told Reuters. 'They need to have a better
cost base, otherwise they're going to be in real trouble soon.'

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AT&T and T-Mobile merger deal on the brink of collapse as antitrust lobby gains momentum